CMHC seeking to hide foreclosure information from home buyers

CMHC seeking to hide foreclosure information from home buyers

Canada Mortgage and Housing Corp. has been asking realtors for months to keep consumers in the dark about whether the properties it sells are part of a foreclosure, according to a document obtained by The Financial Post.

Canada Mortgage and Housing Corp. is cutting back on mortgages it insures as the Crown corporation edges closer to a $600-billion cap imposed on it by the federal government, the Financial Post has learned.

A CMHC spokesman confirmed that it had approached a number of lenders at the end of 2011 about reducing its “bulk or portfolio insurance” after third-quarter results showed the agency had committed to back $541-billion in mortgages.

The move, said to be part of CMHC national policy, upset Quebec realtors who refused to play ball, worried about an ethical breach.

The Quebec Federation of Real Estate Boards, which oversees the 12 real estate boards in the province, says it challenged CMHC about the change requiring them not to report on a detail sheet that properties for sale were part of a foreclosure, despite the fact that information is considered mandatory when loaded by brokers onto the selling system of local boards.

“Because the repossession field is currently a mandatory field in the brokerage system you have no choice by to indicate ‘no’, which goes against ethical rules stipulating that real estate brokers are obliged to publish information that is truthful and verified,” the group said in a statement to members.

The two sides resolved the issue by making it no longer mandatory to reflect the foreclosure status of a home, based on the seller’s instructions.

The issue raises a larger concern about why CMHC is acting now to tighten up its practices for foreclosures.

Some real estate industry insiders wonder whether the Crown corporation is simply being prudent, not letting potential buyers know a property is part of a distressed sell so they can put in a low-ball bid.

Others question whether the Crown corporation is just getting things in order in case home prices collapse and they are forced to sell properties that are backed by government insurance.

I can’t imagine CMHC is in the dark on that. My suspicion is they want to limit any loss on that hits their books

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In Canada, anyone buying a home with less than 20% down and borrowing money from a financial institution covered by the Bank Act must get mortgage default insurance. CMHC, which controls about 75% of the insurance market, is ultimately backed 100% by the federal government.

“Look at what is going on right now in financial institutions and everybody is ratcheting up their loan-loss provisions,” said Ben Rabidoux, a Canadian analyst for California-based Hanson Advisors, a market research firm whose clients are institutional investors. “Everybody expects loan losses to rise. I can’t imagine CMHC is in the dark on that. My suspicion is they want to limit any loss on that hits their books.”

By limiting the information on whether a property is part of foreclosure, the Crown corporation would potentially avoid a situation in which a buyer knows it has to sell. In the United States, foreclosed properties have sold at huge discounts.

“CMHC is trying to get the better price,” said Don Lawby, chief executive of Century 21 Canada, who had not heard of the new policy. “You know something is repossessed, you low-ball the offer. You know you are not dealing with a homeowner but an investor.”

Based on current market conditions, CMHC doesn’t appear to be looking at a huge uptick in foreclosures. The latest data from the Canadian Bankers Association shows only .32% of mortgage holders are in arrears and number is actually on the decline.

A CMHC spokesperson was not available for comment.

Some also question whether the strategy would amount to much because although brokers may not load the foreclosure information onto a public site, it would become readily apparent to any buyer it was a repossession when CMHC is revealed to be the seller.

The Quebec Federation of Real Estate Boards, while leaving brokers the option about publishing the information, indicated brokers will ultimately tell people CMHC is behind the sale when asked.

“The broker has to give the information once anyone is interested in that property,” said Chantal de Repentigny, assistant director of media relations with the federation. “The only thing that has changed is they have the choice to do it on the listing.”